tv Bloomberg Bottom Line Bloomberg May 22, 2014 2:00pm-3:01pm EDT
>> from bloomberg world headquarters in new york, i'm mark crumpton and is "bottom line." wages -- workers call for better wages at mcdonald's. the mayor of seattle proposes a $15 per hour minimum wage. and sales of existing homes rise in the u.s. for the first time this year. to our viewers here in the united states and to those of you joining us from around the world, welcome. we have. -- full coverage of the stocks and stories making headlines today. peter cook details the house
vote on nsa surveillance practices. yang yang is at mcdonald's headquarters in illinois, where workers took their fight for higher wages. we begin in kiev, just days before ukraine's election. what is the latest on the ground? another violent day in , according ukraine to a local official who just spoke on television. 16 people were killed by separatists. and this morning, a russian aircraft entered ukrainian airspace. there's a growing divide between the two sides in this conflict and is no more apparent than in the city of donetsk. donetsk is not exactly a city under siege, but with armed men now a commonars sight on the streets, it's certainly a city on the edge. [chanting in foreign language
>> donetsk city sits at the center of a vast province in eastern ukraine that borders russia. recently, a group of pro-russian renegades declared it separate on the rest of the country. a move the government in kiev swiftly condemned. >> i used to be a ukrainian, a separatist militia member told us at a checkpoint on donetsk outskirts. now, i don't know what i am -- a separatist, a terrorist, one of the rebels, a lowlife, a progression activist? anything but a ukrainian. >> after an army base in ukraine was ransacked, he got his gun for free. the independence declaration in donetsk has deeply divided residents here. elena on the right is a 42-year-old engineer who has often worked for major russian gas company, but she says the
pro-russian separatist are abandoning law. this woman disagrees. she said they are just sticking up for the people of donetsk and include -- the new leaders in key have are the real terminals. -- the new leaders in kiev are real criminals. banks have been targeted throughout the donetsk republic. visited,companies we like this logistics and delivery business, told us revenues have been cut in half since the start of the year. it is now just days until ukraine election, but there's no certainty the results will offer any solution in this time -- and if this standoff continues much longer, it may not be lives at risk here, but it may be jobs. >> what exact they are these separatists asking for? >> there is a real range when
you talk to them. some of them are saying they very much want an independent people's republic of donetsk and nothing more to do with ukraine. there are some that want a more federalized ukraine, where we have a great deal of autonomy. and then there are those that say in an ideal world, we would be taken over by russia. >> is russia actively involved in the separatist movement from what you saw and reported? that is an interesting question. certainly, the new prime minister of this independent people's republic of donetsk is himself a russian citizen, from moscow. uniformsquipment and they are carrying they bought in russia. -- were bought in russia. whether they are actively involved or not, they certainly have a huge amount of influence over what happens there. >> reporting live from kiev, willem, thank you so much.
the national association of realtors says there was a 1.3% increase in sales last month as the industry kicked off the spring selling season. u.s.lle meyer is a senior economist at bank of america-merrill lynch. she joins me here. welcome back. >> it's good to see you. >> for time buyers, they represented 29% of all transactions last month. -- first time buyers, they represent 29% of all transactions last month. are people turning to feel more confident? >> we have seen a little bit of the shift in first-time home buying, but i would be careful. there are seasonal issues when you are looking at this share of buying that is going to first-time buying. in the spring there is a seasonal pickup usually with first-time homebuyers. if you look at the wrong -- longer trend, historically we are still at a low level for first-time home buying.
>> investors accounted for 18% of the home purchases last month, up from 17% of month earlier. and as you just alluded to, seven out of 10 investors paid cash. who are making these -- was making these purchases? is institutional investors? >> partly, but there are other investors who are looking to buy fixed assets. in this environment where it is difficult in terms of finding good investments, with long-term investments, housing has become very attractive housing -- attractive asset class. we have seen exactly that, those looking to buy real estate, particularly in those markets that have a good amount of distressed inventory, with the intent of renting out. it has been a pretty good trade. >> compare with a year earlier, existing home purchases were down 7.3% on an unadjusted basis . in april,h gain
limited to stronger results in the west and the south. what accounts for the disparity, particularly in the northeast and the midwest? was at the weather? -- was it the weather? >> it was partly a weather issue, but i'm skeptical to say that all of the softness we saw was just weather related. home sales have been softening now since the end of last summer. i think that the winter probably made the trend a bit worse and it probably hurt that downward itjectory, but i don't think is the whole weather story. people have said you cannot just blame it on the weather. there were other structural factors involved, as you said, evidence before we even hit the bad weather. how has this sector been spotted? >> in general, housing is recovering.
we will continue to see an trajectory. it is a bumpy ride and a lot of challenges along the way. one of the challenges particularly for existing home sales is the increased interest rate that we experienced last summer. that coupled with the fact that housing prices have been rising this whole time, that has affected afford ability. it is still more affordable, but --ig shift from the spring to the spring from last spring. a year ago, the number you alluded to was 3.51%. how is the rise impacting housing overall? and will it make the fed rethink its strategy to raise its interest rates? when the fed raises interest rates, mortgage rates will go up and they could pry some people out of the market. >> absolutely. , we areenvironment seeing some home buyer interest
rates go up. historically, it is four points -- 4.5%. it is a good rate. with greater income growth and a stronger economy, expectations will turn higher and i think the housing market will be able to absorb the higher interest rate. but without a raise in the fundamentals, it will be challenging for the housing market. that is what the fed has to consider. they have to think about what the appropriate level of interest rates is broadly for the economy, and particularly for housing. >> the commerce department, their statistics about residential construction have can -- have contribute it to economic growth in the last two quarters. is that a concern to you? >> not only did it contribute, but it actually detracted from economic growth in the past two quarters. residentialarter of investment is nonmortgage related transaction costs, which
have been entirely tied to home sales. in addition, sales in the first quarter were week. part of that was weather related, but that entirely. we think we will see some positive gains for the rest of the year. aggregate,nce -- on we think residential home growth a smally go up percentage. >> are people getting attention from some of the funders, from the mortgage banks? >> yes, it is starting to thaw. but on balance, bad credit is still a big challenge. >> the shell, it's good to see you again. coming up, we will look at how confident americans are at reaching their retirement goals. i will speak to the ceo of one of the top asset managers for pension funds when "bottom-line" on bloomberg television continues in just a moment.
>> u.s. stocks are rallying, boosted by manufacturing and housing numbers released this morning. let's look at what institutional investors are saying about investing in the stock market. jeff becker, ceo of foia investing management, formally ing investment management. mr. becker, welcome to bottom line. welcome to coming on today. your company is a top institutional-- investor of assets. where are you putting your money? >> if it is a participant retirement plan, they are putting money into fixed income assets, and more and more into target date funds, which is a one-stop shop with asset allocation. >> year to date, the dow
industrials and the nasdaq are lower, but the s&p is up over 2.5%. the markets have been choppy this year, as you know. what is the outlook for equities and where are you looking to invest? overseas or here in the u.s.? >> predominantly the u.s. overall, quarter one gdp was soft. ofhave seen signs improvement in q2. obviously, housing and -- asoyment, as a pickup they pick up him as your guest was just speaking about, we think that will keep the fed accommodative. we think that will be a net positive for the equity market. >> speaking of long-term rates, that ties into fixed income. as you know, the fed will eventually have to raise interest rates.
what are you investing in u.s. treasuries? >> think the question is -- why are u.s. treasuries so low? >> yes. >> it is a value play, given what has been happening overseas with the markets over there in e.rms of the blend -- bund >> the yield on that right now is 2.5. >> think it is a false positive. >> really echo >> investors are not seeing the return for the reliable needs. as a result, i think fixed .ncome is exaggerated ultimately, they are looking for higher yield capabilities and we have some of those high yields in the bank loan, which is a floating rate offering rising rates. we have the mortgage derivatives, which are uncorrelated.
private placement of liquidity premium. and we have investors interested in seeing those packages in unconstrained fixed income. >> you are conducting a survey you just alluded to. what are the main findings of that survey? >> we had three main findings. first, we found that those who invested in target date funds were confident about achieving their retirement goals. second, those participants are actually contributing more to their retirement plans. and lastly, that those participants want capital preservation at the retirement date. oya investment management has a two-target date. you didn't change or focus particularly when it came to
retirement. it seems to be your bread-and-butter. are americans putting enough they areretirement? >> clearly not. it has been spoken to has a retirement crisis in america. looking at company that issue holistically and bringing all of our businesses and capabilities to bear for the asset management business and insurance business. we are trying to protect the accumulation phase and ultimately, the distribution phase. >> where are they putting their money? >> you mean retirees generally echo -- generally? putting into retirement date funds, which means at the expense of all other asset classes. the financial stability saidight council has been to need to let the sec takeover asset management rules. ?hat would that do
what with that designation mean? >> that is a hotly debated issue right now, as you know. and we believe that ultimately, we are deploying capital for other institutions and we should not be considered systemically important in that regard. >> why not? >> i think that ultimately at again, we the day, are deploying institutions capital in that regard. and moneye processes through the system that are well controlled and regarded. he sec can monitor that risk appropriate the and we don't need another oversight involved. >> jeff becker, thank you for joining me. the house of representatives votes on a bill to end the nsa's bold election -- bulk collection of america's phone records. what it means for you. ♪
>> friday night on political capital with al hunt, iraq and afghanistan veterans ceo paul wyckoff will discuss embattled veterans affairs secretary eric chin says -- air missions of the -- eric k. shinseki and the controversy currently on the hill. today in theed first legislative response since edward snowden started leaking and -- nsa documents about a year ago. critics say the changes don't go far enough. peter cook is live on capitol hill.
good afternoon. >> an important moment here on the floor of the house of representatives today. response,concrete coming as you said, since about about over the revelation the u.s. spying techniques. the majority overwhelmingly voted in favor of this bill. both democrats and republicans were backing this bill. but there were questions about some of the wording. for the first time, it bars the government from collecting american phone records and old collection of any records whatsoever. instead it asks the phone companies to retain that data and the government can still query that data under court order if it expects someone is tied to terrorism. -- suspects someone is tied to terrorism. but it has to get a court order. there's also greater transparency for the technology companies.
they can disclose more information on when the government asks them for some of this data. but again, the vote could have been even stronger had it not been for some last-minute changes lobbied for by the intelligence community. billsupporters of this ended up being opponents because of it. played outg debate on the floor. >> let me be clear, i wish this bill did more. to my colleagues who will amend the changes, i agree with you. to privacy groups that are upset about lost provisions, i share your disappointment. the negotiations for this bill were intense. we had to make compromises. but this bill still does deserve support. still allowslation the government to collect everything they want against americans, to treat americans as suspects first and citizens second. coalition of nine technology companies, including google, apple, and microsoft,
they were pushing for this bill and ended up being against it, critical of some of the last-minute changes. it is headed now over to the senate. if the white house back this bill, we could see this become law why the end of the year. >> eater cook live on capitol hill -- peter cook live on capitol hill, thanks. it is 26 past the hour and alix steel is standing by with more on the markets. >> good afternoon. tradingin trading has around the highs of the session. stabilizing, april increasing for the first time in four months. employer manufacturing read in may also good. a couple of movers you want to highlight for you. first, general electric is extending its $17 billion offer to june. this is at the request of the french government. -- set toad been to
>> welcome back to the second half-hour of bottom line and i'm a content. i'm are has -- crumpton. the army has staged its coup in thailand. the army chief took control of the government after detaining leaders of political rivals. a political been in crisis the last six months. russia and china have vetoed a un security council resolution, referring the crisis in serious to the international criminal board for an investigation of
possible war crimes. this is the fourth time russia and china have used their beats -- their veto power as permanent council members to deflect action against the government of president bashar assad. the number of people seeking unemployment benefits in the u.s. jumped last week, but remained at a low level, suggesting hiring should remain steady. the labor department said applications rose 28,000 to a seasonally adjusted 326,000. applicationster fell to their lowest level since may of cook -- of 2007 two weeks ago. seattle is leading the charge for higher wages. mayor ed murray recently announced a plan to raise the minimum wage in his city to $15 an hour over the next three to seven years, making it the highest rate of any major american city. the mayor joins me now. thank you for your time today. >> thank you for having me on.
>> why do you think seattle should lead this fight? >> i think cities in general have always been laboratories of democracy. we are in a country right now where the federal government is somewhat frozen. the middle-class has been declining for the past three decades. this is our opportunity to lead the way in doing something about rebuilding that middle-class, by mid--- by raising the minimum wage. but by doing it smart, doing it over seven years. >> even you have expressed concerns that a raise in minimum wage could hurt the economy or kill jobs. what has the business community been telling you? >> i believe that if we are smart about how we increase the minimum wage, and those things won't happen. studies have shown in san francisco and santa fe, where they have higher minimum wages, that those things have not happened. we have nonprofit groups and labor leaders that have come together and all but three
endorsed the proposal i put together. some businesses are supportive. some are neutral. and some are opposed. >> what about employees who make tips or receive benefits versus those who do not? how would they be impacted by a minimum wage increase? compare that to a state law that does not require a permanent -- require in minimum wage for its workers? >> it's different than the state law, which does not permit it. but locally, we are able to do this and we would do it during the time that the minimum wage increased. would addresst particularly our restaurants and small businesses. >> if the minimum wage is increased, won't that cost be passed onto consumers in the form of higher prices in restaurants and other establishments? is,ou know, the experience
if by raising the minimum wage, this is one of the traditional ways we can move people out of poverty. we increased buying power. studies would indicate that when people are better paid, they spend more money and stimulate the economy. thatu have cited studies we have heard of. ift do you think of washington doesn't get it? you are in the camp of if people are paid more, they will spend more and that is good for the economy. andthey will pay more taxes that is good for municipalities, particularly in the days only need infrastructure. what is it that washington does not get in your opinion? >> when you say what doesn't washington get, do you mean washington, d.c.? >> yes, i'm sorry. >> i'm in the other washington. what washington doesn't get through the paralysis is that this is the way that both
-- thaton state can both washington and washington state can move people out of poverty and instantly the economy. the model over the past 30 years has caused the middle-class to decline versus the model this country had after the second world war through the middle of the 1970's. ofnick licata, a member seattle's city council. he has expressed concern about employer mandates, including minimum wage. -- what assurances will you receive that the law is being enforced? have acity does not now good mechanism to look at labor laws in general. in a separate piece of legislation we are working on developing a way to have oversight to make sure these and other labor laws are being enforced, but not simply as a watchdog, but also as an agency tot can assist businesses conform with the law and so we
can help them and not just saying gotcha. >> last week, you said you wanted voters to improve -- approve both tax and fee increases to help get the buses from the city running to the suburbs. is there not another source of funding? and why not just propose eight -- a property tax increase to raise that money? >> the tax that is proposed is mostly a tax on automobiles. our property taxes limited because of a state initiative. our property tax is our main source for dealing with things, such as parks and human services and school district. to gok he would be hard to the voters and asked them to raise the property tax for transit at the same time we are going to ask to raise property tax to assert universal pre-k in seattle. it is smart to have one dedicated to transportation and
the other dedicated to property tax. >> thank you so much for your time. >> my pleasure. >> meantime, mcdonald shareholders approved the ceo's $9.5 million compensation package at the company's annual meeting. -- thekers brought their issue of their own low wages front and center through protest. yang yang was at mcdonald's headquarters in illinois. what was the mood at the meeting? >> the mood at the meeting was far more positive than the mood outside. outside today and yesterday, we saw more than 1000 protesters yesterday stormed through the entrance of the mcdonald camp. ultimately, 138 mcdonald's labor were arrestedbers inside that area. saideo don thompson mcdonald's is going to pay back
to its shareholders $4.9 billion in 2013. a part -- a far more positive don thompsonbut did address the issue of low wages. but minimally. here is what he had to say. >> we respect the fact that they to -- that they want challenge us relative to wages. we continue to believe that we pay fair and competitive wages and we provide opportunity and job opportunities and training for those entering the workforce. we are trying to be a really great employer. >> that was about the extent of the comments on the low-wage today,s that we've seen yesterday, last week, the last few months. that is all we really heard, despite protesters best efforts yesterday. the demonstration yen -- yesterday was the largest we've seen. >> what exactly are the protesters asking for? >> they are asking for a $15
living wage. your guests, seattle mayor ed mary, would probably have to agree with them. would probably have to agree with them. for a raise asking in wages without retaliation. and they say their point is to show the american -- the average american what mcdonald's employees look like. it is not just teenagers looking for spending money. most of their employees are tolt with families they need pay for. and the nine dollar an hour average that fast food workers are getting paid in the united states is not enough to make ends meet. that is what they are here to fight for. and they said they would keep fighting until they get their way. >> yang yang joining us from outside mcdonald's headquarters in illinois. thank you. still to come, secretary of state john kerry wraps up his trip to mexico in a latin
x be sure to check out the late -- >> be sure to check out the latest of bloomberg businessweek. it hits the stands and tablets today. spotifyreaming service has announced it has reached 10 million subscribers. the country was founded in 2006 at a time when the music industry was still adjusting to the advent of itunes. charlie rose spoke with its founder, 31-year-old daniel at. think prettyme, i much every single person told me that getting into the music industry was the purse -- worst possible thing i could do. this was an industry that was a $45 billion industry. and now it is probably about $15 billion. it is one third of the size it
was a decade ago. obviously, if you are in it for the money, it's not the right thing to be going into. for me, it's just all passionate about music and technology and trying to marry both of them. >> before we ask you about spotify as regards to music, let's ask the question -- what the spotify do? >> it takes all of the world's music and makes it accessible anywhere, anyplace, on any device. was,roblem we try to solve prettyspotify, it was clear that i received was one of those things people were doing, not because they actually thought it was the right thing to do, but it fit your lifestyle. it was the only way they could access all the music that they wanted in an affordable enough way. at spotify, what we try to do is to create a product that was better than private -- piracy. not be any would
piracy. >> right, exactly. instead of trying to legislate against it, we realize you cannot stop technology. it is really about creating a legal alternative, but in the end is also a better product. that is what we tried to do. that is the embryo of spotify. >> it is good for music because, a, people enjoy it and have -- and,o music, and be, b, deliverin it eliminates pira. >> it is an innovation on two fronts. one is, the actual product itself. the second art is the actual business model. before spotify, everyone was talking about the concept of subscription music, but no one had realized it in a way that consumers cared about it. that was the business model site. again, piracy was a very successful product, but the business model for the musicians
and the music industry was not there. we knew that what we had to do was to solve two problems. --, create a progress product that was better than piracy. the second part was to make a business model that made sense so that the musicians and the music industry could benefit from them. >> you can watch charlie rose, the whole interview with spotify 8:00 andaniel ek at 10:00 right here on bloomberg television. it is time for the latin american report. brazil fell to its lowest level in three months. the jobless rate was decreased from four point -- 24.5% from five percent in march. -- lowered to 4.5% from five percent in march. john kerry concluded a two-day visit to mexico in an effort to bolster security. disputes over sugar and steel trade between the u.s. and mexico are straining ties
between the countries. this as negotiators try to hammer out new sales of the pacific rim trade back to further integrate their economies. that is your latin america report for this thursday. up next, mr. obama goes to cooperstown. no sitting president has ever been there before. details on efforts to use sports to promote tourism when "bottom line" returns in a moment. ♪
>> in about 30 minutes, president obama will be pushing the u.s. tourism industry and the baseball hall of fame in cooperstown, new york. but the choice of location may be about more than tourism as the president looks to boost approval ratings that remain a drag on the democratic hardy. phil mattingly joins me with more. >> good afternoon. it's no secret that president always look to associate with winners. i'm going back all the way to andrew johnson, that has
included athletes, sports teams, and sports shrines as they look to leverage america's strong like for athletics. -- for athletics with policy and political initiatives. what we are seeing today is no different. today marks the third event that we have had with the president that a sports related this week. the president will announce a series of initiatives today, designed to boost a tourism industry that has seen major gains in the last three years. in 2013 alone, tourism reported 70 million international visitors, as much as $180 billion in spending and a trade surplus of $57 million. like this thates white house officials believe can continue to boost economic growth in the country, even if it's not on the scale they desire. >> bottom line, will the president's initiatives today have any real impact on travelers?
>> if you talk to the travel industry and white house officials, they say yes. the key thing is, they are looking to boost international travel. among the actions the president will take, expedited entry in the 15 largest airports. they have done this on a micro scale at the three largest airports in the last couple of years and travel industry reports say it has been extremely successful. also, the president will order the department of homeland security to expand technology used for book -- for expedited entry. if you are traveling internationally, wait times should be down significantly, as much as 30% in some cases. overall, these initiatives are not the massive boost to the travel industry that the administration would absolutely are for, but for what they have power over from the oval office with the stroke of a pen, this is something they say will have a noticeable impact. >> thank you. stay with us. another check on the market movers is on the other side of the rate. "bottom line" continues in just
that means bloomberg television is on the market. i'm alix steel. we are still looking at stocks moving into the green today. to s&p is up seven points about 1895, right around record highs. utilities and distraction aries -- and discretionary's are among the biggest sectors within the s&p. retailerhinese online bye about 1.7 8 billion rising $19. manager is a portfolio at asset eagle management. first, how would you define old versus new, and why would you prefer it? clicks you can talk about certain subsectors of technology likeare new tech, things
printing, big data, social media for the most part, things like that. the old tech that we are talking of,t are the companies let's say, 15 years ago, at the birth of the internet, the personal computer. names like microsoft, apple, light materials, some of the semi conductor names. >> it sounds like what you do like is value versus growth. why is that? plexus is just what we do. we have been invaluable -- >> this is what we do. we have been value investors all our lives. we set you up for positive surprises if things go well and we protect you from the downside. the dings we like -- the things we like about the old tech companies, it's everything to do with cash on the balance sheet, the ability of these companies free cash flow that
is, cash they don't need to run their business. and that is because they are not having to reinvent themselves every six--- every six to eight months like they did in the past. >> how much of side you see from the stock? -- new tech that has really gotten beaten down, old tech are still on their highs. how much will they move? >> i don't think they will move from the skies by any means. i think we will ground out a low double-digit return from these companies as more and more value investors begin to look at these. this is not a sector in general that value investors have typically been very comfortable with. as we begin to look at the free cash flow growth, what these companies are doing in terms of
returning cash to shareholders, i think the demographics of ownership are likely to change for the industry. >> we only have about 20 seconds left. what do you think of the alibaba's of the world? >> they are interesting companies and we will pay attention to them. but just like microsoft and applied materials of 15 years ago, they were not something we would invest in. we will follow them and, who knows? maybe in 15 years we will be in those stocks. >> we appreciate it. talking about new tech versus old tech. we are back on 30 -- on the markets in 30 minutes. ♪